The Foreman Companys earnings and common stock dividends have been gro

QUESTION

The Foreman Companys earnings and common stock dividends have been growing at an annual rate of 6 percent over the past 10 years and are expected to continue growing at this rate for the foreseeable future. The firm currently pays and annual dividend of $5 per share. Determine the current value of a share of Foreman common stock to investors with each of the following required rates of return.A. 12 percentB. 14 percentC. 16 percentD. 6 percentE. 4 percent
P0 = D1 / Ke-G P0= Current Price of share D1 = D0(1 G) Ke = Required Rate of return G = Growth (A) Current Value of share at Ke-12% P0 = 5 * (1.06) 12%-6% P0 = $88.33 (B) Current Value of share at Ke-14% P0 = 5 * (1.06) = $66.25 14%-6% (C) Current Value of¦

hare at Ke-16% P0 = 5 * (1.06) = $53 16%-6% (d) Current Value of share at Ke-6% P0 = 5 * (1.06) = $0 6%-6% (e) Current Value of share at Ke-4% P0 = 5 * (1.06) = -$265 4%-6%

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